The big news coming out of last month’s Consumer Electronics Show in Las Vegas can be summed up in one word: Wireless. The barrage of mobile content deals announced at the event – including the launch of telecom giant Verizon Wireless’s next-gen streaming video and 3-D game service Vcast – seems to indicate that 2005 will be the year that the North American wireless data market goes mainstream.

An informal poll of licensors of kids properties shows that most are looking at this emerging wireless world not only as a significant new revenue stream, but also as a key brand extension opportunity.

According to Boston, Massachusetts-based market researcher The Yankee Group, roughly 47 million mobile phone users owned data-enabled phones capable of downloading ringtones and games and sending text messages by the end of 2004, representing nearly a quarter of the total cell phone market. These folks spent US$4 billion on these apps last year, and Yankee expects that number to jump to US$14 billion by 2008, with entertainment-driven applications making up 30% of this total.

Consumer data for Verizon Wireless’s Get It Now service, which offers mobile games and ringtones based on Nickelodeon and Disney properties, seems to back this up. Between July and September 2004, 26.8 million customers downloaded goods from the service, and it now registers more than five million downloads per month. According to Paul Jelinek, VP of business development and operations for Nickelodeon Online, SpongeBob SquarePants wallpaper, available on Sprint’s comparable service, was downloaded more than 500,000 times last year.

It’s difficult to determine exactly how many kids own cell phones because wireless carriers don’t permit people under 18 to sign service contracts, so most kids with phones are part of family or pay-as-you-go plans. But The Yankee Group estimates that one-third of U.S. kids ages 11 to 17 owned their own phones in 2003, and says that number doubled last year.

With pocket-money prices that run from US$1 to US$6 per download, personalized graphics, ringtones, games and instant messaging hold an obvious appeal for kids, so it’s not surprising that wireless carriers and application manufacturers are interested in the demo as consumers – especially those in the chatty tween bracket.

But younger kids certainly aren’t being left out of the equation. Application manufacturers and licensors with younger-skewing properties are anticipating that the pass-back factor will be a strong consumer model. Parents, they believe, will readily download games and video content on their own phones and hand them over to keep their wee ones from having meltdowns in the grocery store or during long car rides.

While wireless data services have been available in Asia and Europe for some time now, the U.S. market is just coming into its own, and licensors working in the space are all over the map in terms of product development.

At one end of the spectrum are entertainment behemoths Warner Bros. and Disney. Both are producing their own wireless apps in the U.S. without licensees. WB Online started up its wireless publishing operation about a year ago and soft-launched WBmobile.com this past December to offer Looney Tunes, DC Comics and The O.C. wallpapers, ringtones and voicetones directly to consumers. Meanwhile, the Walt Disney Internet Group is publishing Disney content through its Starwave Mobile unit and has also begun licensing properties such as Hasbro’s Trivial Pursuit for mobile games.

Marvel is looking to build a whole wireless world for its characters through a licensing deal with Bellevue, Washington’s MFORMA. Tim Rothwell, Marvel’s of worldwide consumer products, says this wireless environment – containing ringtones, voicetones, games, screensavers, greeting cards, comic books and video clips – should be up and running within six to nine months. MFORMA will take on all manufacturing and distribution costs, and plans to market the collection as a subscription service that carriers can pick up for their networks.

Most IP owners, however, are still just getting used to the space and discovering what apps best suit their portfolios. Nickelodeon has traditional licensing relationships with mobile game companies THQ Wireless, Jamdat and Sorrent. Jeff Nuzzi, director of global marketing for THQ Wireless, says his division’s contracts came out of video game licenses signed by parent company THQ. For Nick, this arrangement offers good cross-promotional opportunities. For example, the mobile version of 2004’s Fairly OddParents Shadow Showdown game contained cheat codes and features that interacted with the console game’s software.

Working with wireless application publisher Faith West, the house of SpongeBob also co-publishes voicetones and ringtones featuring its many character voice actors that are distributed on major U.S. carriers such as Sprint. And Nick has just entered into a direct deal with Verizon, which will add short video clips created specifically for wireless broadcast to its VCast subscription service.

In the coming months, Nickelodeon is looking to widen its distribution channels even further by opening a direct-to-consumer Internet portal like WB Online. Jelinek says Nick has also just started developing premium text messaging for kids. So far these capabilities have primarily been applied to events such as the Kids Choice Awards, for which kids voted using SMS this year. But Jelinek anticipates eventually being able to deliver downloads to kids’ phones.

Similarly, Nuzzi says THQ purchased a company called Minick last year that specializes in creating SMS applications for distributing other wireless products directly to a user’s handset via a web link. The service has become one of its core licensee offerings, along with games, graphics and ringtones.

Interestingly, SMS capability was one of the main reasons that DIC chose U.K.-based One World Interactive as its first Trollz wireless licensee. Right now, girls can punch 77355 (or SPELL) into their phones to send an SMS message to their friends that will cast a spell on their customized Trollz created on-line. One World is also working on screen savers, ringtones and a unique chat alert feature that will enable girls to send a text message from Trollz.com to a friend’s cell phone, saying ‘I’m on the Trollz site; come meet me here.’

Heather Fuscellaro, DIC’s director of licensing, says that it will cost girls US$0.30 a pop to send SMS messages, and a download price is being nailed down. But the site will work on a pre-paid model, so parents can purchase usage time in US$20 increments. Once girls hit that limit, they’re cut off until the on-line account is replenished.

While Sesame Workshop has a number of applications up and running in the technologically advanced Japanese market, until this month, it only had monophonic and polyphonic ringtones available in North America. The company has selected Verizon’s VCast to make its first splash in this market.

‘It made sense for us to go with video out of the gate,’ says Paul Marcum, VP and GM of Sesame’s interactive media group. From a financial standpoint, the service uses Sesame Street content that already exists and operates on the consumer model most likely to work with its core preschool audience – the pass-back model. Marcum also says video requires little production to bring to market, whereas applications like games involve a lot of development.

With its strong tween girl fan base, MGA Entertainment’s Bratz seems like a natural contender for the cell phone market. And MGA’s executive VP of worldwide licensing, Sid Kaufman, says the brand will go wireless this year. THQ Wireless is working on a mobile game to correspond with the console game it’s releasing this fall, and Kaufman expects to conclude a deal for other applications that will be a big part of the holiday ’05 marketing plan for Bratz.

Kaufman says that in addition to North Americans finally turning on to the technology, financial models are also stabilizing, and revenue splits are becoming reliable. Based on what he’s been seeing in the market, licensors can expect to make roughly one-third (plus or minus a few percent) of the adjusted gross revenue generated by an application. That may seem high compared to other categories, but with the low price-point of downloads, he says you have to ‘sell a lot of ringtones to make a profit.’